072942/EU XXV. GP

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Council of the European Union

Brussels, 16 July 2015 (OR. en)

11012/15 ADD 2

ENER 284 ENV 493 CONSOM 131 CODEC 1054 Interinstitutional File:

2015/0149 (COD)

COVER NOTE

From: Secretary-General of the European Commission, signed by Mr Jordi AYET PUIGARNAU, Director date of receipt: 16 July 2015

To: Mr Jeppe TRANHOLM-MIKKELSEN, Secretary-General of the Council of the European Union

No. Cion doc.: SWD(2015) 139 final

Subject: COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a Regulation of the European Parliament and of the Council setting a framework for energy efficiency labelling and repealing Directive 2010/30/EU

Delegations will find attached document SWD(2015) 139 final.

Encl.: SWD(2015) 139 final

072942/EU XXV. GP

Eingelangt am 16/07/15

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EUROPEAN COMMISSION

Brussels, 15.7.2015 SWD(2015) 139 final

COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT

Accompanying the document

Proposal for a Regulation of the European Parliament and of the Council setting a framework for energy efficiency labelling and repealing Directive 2010/30/EU

{COM(2015) 341 final}

{SWD(2015) 140 final}

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2

The basic problem that products can have a negative impact on the environment depending on how they are made, used and disposed is addressed by the Ecodesign and Energy Labelling Directives. However, problems have arisen in the implementation of the Directives. Most products are now in the top classes of the energy label making it more difficult for consumers to distinguish between models. Moreover, the "A+", "A++" and "A+++"

classes introduced during the previous revision of the Energy Labelling Directive have shown to be less effective in persuading consumers to buy more efficient products than the A to G scale. Further, there is non-compliance with ecodesign and labelling requirements leading to a loss of about 10% of envisaged energy savings, in part related to weak enforcement by national market surveillance authorities. Evaluation also revealed further problems with the current policy framework and implementation. These problems do not only affects the potential energy and environmental savings targeted by the policy, but also affect consumers as their energy bills are not reduced by as much as is envisaged.

What is this initiative expected to achieve? Maximum 8 lines

The main objective is to reduce energy consumption (and associated energy bills) and other significant environmental impacts of products by ensuring consumers are informed in a relevant and easy-to-understand way and allowing industry to transform environmental challenges into economic opportunities. In terms of energy savings the current 10% loss of savings due to non-compliance is a specific target, but also potential further savings through other improvements are to be explored. In addition, a main objective is to provide a simplified policy framework that is apt for purpose and robust to future developments.

What is the value added of action at the EU level? Maximum 7 lines

The objective of reducing negative environmental impacts of products, in particular energy use, cannot be sufficiently achieved by the Member States, because this would lead to divergent national provisions and procedures (while having similar objectives) that would generate undue costs for industry (and eventually consumers) and constitute obstacles to the free movement of goods within the EU. Acting at the EU level is the only way to ensure that requirements and labels for products placed on the market are equal in all Member States, thereby ensuring the functioning of the Internal Market underpinned by Article 26 of the Treaty on the Functioning of the European Union.

B. Solutions

What legislative and non-legislative policy options have been considered? Is there a preferred choice or not? Why? Maximum 14 lines

One non-legislative option and three legislative options representing varying degrees of the extent of reform of the Directives have been formulated. The non-legislative option ("1") includes improvements within the existing regulatory framework. The first legislative option ("1+") combines the non-legislative measures with changes to the Energy Labelling Directive to address the layout of the label and requiring registration prior to placing labels on the market. The second legislative option ("2") adds to the first one also registration of products covered by ecodesign and requires product to be third-party tested (instead of in-house). The third legislative option ("3") is a complete overhaul of the framework extending the scope of the Directive to all products, not just energy- related products; in order to better address non-energy environmental impacts. For the legislative options separate sub-options are defined concerning the layout of the label, with energy efficiency scale ratings of respectively A+++ to D (baseline), A-G, 0-100 and 9-3. The preferred option is option 1+ combined with the sub- option of the A-G scale for the label. This option achieves significantly better impacts than Options 0 and 1.

While options 2 and 3 achieve even better results, they are questionable with regard to international obligations and for option 3 also for the principle of proportionality. The A-G label, shows the best results and its additional administrative costs are more than offset by its superior effect on consumers related monetary benefits.

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Who supports which option? Maximum 7 lines

Option 1 has little support from stakeholders, while Option 1+ has significant support from stakeholders: the vast majority is of the view that the Energy Labelling Directive needs to be changed to achieve energy savings closer to the full economic technical potential. Option 2, revising also the Ecodesign Directive, is supported by a smaller share of stakeholders. In particular industry interest groups are not convinced about the need for change of the Ecodesign Directive. Green NGOs support option 3. The A+++ to D and the 9-3 label do not have much support from stakeholders. The vast majority supports an A-G label, though not all manufacturers and retailers do. The 0-100 label is supported by some industry interest groups.

C. Impacts of the preferred option

What are the benefits of the preferred option (if any, otherwise main ones)? Maximum 12 lines

Approximate yearly impact, 2030:

Energy savings: 552 TWh primary energy Consumer savings € 10-30 billion

Additional commercial revenue € 34 billion

What are the costs of the preferred option (if any, otherwise main ones)? Maximum 12 lines

Administrative and compliance costs are approximately:

€ 7-12 million per year for manufacturers

€ 3-4 million per year for dealers

€ 3 million per year for the Commission

Given that compliance is mandatory, manufacturers and dealers should be able to pass these costs on to consumers, for whom they would be more than offset against their monetary benefits. There are no other negative impacts.

How will businesses, SMEs and micro-enterprises be affected? Maximum 8 lines

The positive impact on revenues affects larger businesses and SMEs and micro sized enterprises in the same way. A different regime for micros/SMEs cannot be justified. All retailers should be subject to the same rules as energy labels are only useful for consumers if all products are labelled in all retail outlets. There are few SMEs manufacturers and no micros. The same rules should apply to all to ensure fair competition in the single market.

Will there be significant impacts on national budgets and administrations? Maximum 4 lines There are no additional impacts on national budgets/administrations.

Will there be other significant impacts? Max 6 lines

In case of revision of Energy Labelling and/or Ecodesign, a revision from Directive to Regulation and removing overlap with the Market Surveillance Regulation would lead to simplification.

D. Follow up When will the policy be reviewed? Maximum 4 lines

A review clause 5-10 years after adoption would be included.

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2. INTRODUCTION

The Energy Labelling Directive¹ requires the Commission to review the effectiveness of the Directive and its delegated acts by 31 December 2014.

The Ecodesign Directive² required the Commission to review the effectiveness of the Directive and its implementing measures by 2012. That review³concluded that no immediate revision was necessary, but that the Directive could be reviewed again along with the review of the Energy Labelling Directive, since the effects of ecodesign implementing regulations and energy labelling delegated regulations applicable to the same energy-related products are often linked and complementary.

This impact assessment comprises the outcome of the review of the Energy Labelling Directive and the Ecodesign Directive. It focusses on the framework Directives and not on the individual implementing regulations or any new energy-related products that may in future be addressed under this framework through the Ecodesign Working Plan. Chapter 3 summarises the procedural issues and the consultation of interested parties. Chapter 4 sets out the problem definition, the conclusions of the evaluation of existing policy, and the outstanding problems and their underlying drivers. Chapter 5 describes the policy objectives. Chapters 6, 7 and 8 present the options, impact analysis, and comparison of options, respectively. Monitoring and evaluation issues are considered in Chapter 9.

This impact assessment supports a new legislative proposal on Energy Labelling. It does not support a revision of the Ecodesign Directive.

Figure 1: The energy label for washing machines

1 Directive 2010/30/EU, OJ L 153, 18.6.2010, p. 1

2 Directive 2009/125/EC, OJ L 285, 31.10.2009, p. 10

3 COM(2012) 765 final

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3. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES

3.1. Impact Assessment Steering Group Lead DGs: DG Energy, DG Enterprise and Industry Agenda planning /WP reference: 2013/ENER+/036

Impact assessment steering group (IASG): The impact assessment work was followed by the Inter-Service Steering Group (ISG) on energy efficiency which met 3 times in February - November 2014. The Steering Group consisted of: DG Agriculture, DG Budget, DG Climate Action, DG Competition, DG Connect, DG Economic and Financial Affairs, DG Employment, Social Affairs and Inclusion, DG Environment, Eurostat, the Executive Agency for Small and Medium-sized Enterprises, DG Health and Consumers, Infrastructure and logistics in Brussels, DG Internal Market and Services, the Joint Research Centre, DG Justice, the Legal Service, DG Mobility and Transport, DG Regional Policy, DG Research and Innovation, the Secretariat General, DG Taxation and Customs Union, and DG Trade.

3.2. Impact Assessment Board

The Impact Assessment Board of the European Commission assessed a draft version of the present impact assessment report and issued its opinions on 5 and 16 June 2015⁴. The Impact Assessment Board made several recommendations and, in the light of the latter, the final impact assessment report inter alia:

í clarifies the scope of the review and this impact assessment;

í explains the relationship with the Energy Efficiency Directive, the Emission Trading System and the Effort Sharing in the non-ETS sectors;

í provides information on expected energy savings and their cost-effectiveness for existing product-specific measures and for potential additional product groups;

í explains where there are differences for different products groups with regard to the effect of the legislation;

í clarifies that the lifetime of products that is used in the analysis is the economic lifetime, which takes into account consumer behaviour on discarding certain products before the end of their technicallifetime;

í elaborates on the role of the market surveillance regulation and why it is not expected that the proposal for a new market surveillance regulation will lead to much additional market surveillance effort on ecodesign and energy labelling;

í highlights the difficulty in establishing performance benchmarks for market surveillance, even for long-established sectors such as consumer product safety;

í elaborates on the effectiveness and practical operation of the product registration database;

í analyses the option of merging the energy labelling and ecodesign frameworks;

4 SEC(2015) 323

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í provides more (qualitative) explanation of the modelling results and corrects an error in the impacts in terms of jobs for the different label layouts;

í elaborates in more detail the monitoring arrangements for future evaluation.

3.3. Use of Expertise and Consultation of interested parties 3.3.1. External expertise

Two studies were specifically commissioned to prepare the review, one general evaluation study (further referred to as the 'evaluation study') and one specific study focussing on consumer understanding and behaviour related to different types of energy labels (further referred to as the 'consumer behaviour study'). In addition, an impact assessment study provided specific analysis for the options set out in this impact assessment. Further studies requested by the Commission during 2011-2014 also provided relevant input. Details are provided in Annex 1.

3.3.2. Consultation of interested parties

Stakeholders were consulted through the following means:

x Three stakeholder meetings organised by the contractor of the evaluation study.

x A public consultation on the ‘Your voice in Europe’ web page.

x A stakeholder meeting on selecting the energy label designs to be tested in the second phase of the 'consumer behaviour study'.

x An international conference on products policy.

x An Ecodesign Consultation Forum meeting.

Further detail on stakeholder consultation can be found in Annex 1.

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4. REVIEW OF THE CURRENT POLICY AND PROBLEM DEFINITION

4.1. The problem

Since this impact assessment concerns a review of existing Directives, the problem is described in two steps in the following sections: firstly the basic problem that created the need for the Directives, and secondly the problems that have arisen in the course of the application and implementation of the Directives.

4.1.1. The basic problem

The basic problem is that products can have a negative impact on the environment depending on how they are made, used and disposed. As set out in previous impact assessments on sustainable product policy⁵the most important market failures and imperfections that prevent the achievement of greater energy and environmental efficiency are:

x Prices that do not reflect the negative environmental impacts of the production or consumption of products;

x Difficulties for consumers to tell whether one product is more resource efficient during its use phase than another;

x Higher upfront costs when buying a more performing product, while the benefits accrue over a longer period of time (i.e. during its use-phase). Consumers may not take into account the use cost of a product but focus on the initial purchase price only;

x Measures on efficiency of products taken by Member States create barriers to the free movement of goods in the EU and unnecessary burden for industry to comply with different sets of rules in each Member State.

4.1.2. The current problem

The above problems have been addressed by the current policy framework through a two- pronged approach:

x Banning the least energy and environmentally efficient products from the EU market through ecodesign requirements for manufacturers, which are EU-harmonised (thus, Member States cannot set different requirements) ensuring the free movement of energy-related products and eliminating unnecessary regulatory burden for companies.

The aim of the Ecodesign Directive is to address both energy consumption and other significant environmental impacts of production, use and end-of-life treatment of energy-related products;

x Encouraging consumers to buy more energy efficient products by informing them about the energy use of products through a mandatory harmonised EU energy label (see figure 1) provided by manufacturers and displayed by dealers. The aim of the Energy Labelling Directive is to address specifically energy consumption during the

5 SEC(2008)2110 for the 2008 Sustainable Consumption and Production and Sustainable Industrial Policy Action Plan, SEC(2008)2115 for the 2008 proposal for a recast of the Ecodesign Directive and SEC(2008)2862 for the 2008 proposal for a recast of the Energy Labelling Directive.

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use phase and, where relevant, other consumption of resources during use of energy- related products.

The two approaches are complementary, with ecodesign 'pushing' the market and energy labels 'pulling' it, as illustrated in figure 2. Energy labels are only introduced for products where an information failure for the user exists, which is not always the case for professional products. A detailed presentation of the Ecodesign and Energy Labelling Directive and their implementation is provided in Annex 2.

Problems have arisen, in particular:

x Energy labels have proved successful in encouraging consumers to buy more energy efficient models and manufacturers have responded by producing ever more energy efficient products. As a result most products are now in the top classes, which have become overpopulated, making it more difficult to distinguish between models. Thus, rescaling may be necessary, in which the required efficiency for each label class is redefined and a product model that now is in class A++ will be 'rescaled' to e.g. class B. This has not yet been undertaken for specific products; when this was proposed to stakeholders for televisions in 2012, this was considered premature without clear provisions for this in the Energy Labelling Directive. Moreover, the "A+", "A++" and

"A+++" classes introduced during the previous revision of the labelling Directive have shown to be less effective in persuading consumers to buy more efficient products than the A to G scale.

x Non-compliance with ecodesign and labelling requirements, in part related to weak enforcement by national market surveillance authorities.

Evaluation also revealed further problems, described in section 4.2.3, with the current policy framework and implementation.

Figure 2: The combined effect of ecodesign ('minimum standards') and energy labels

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4.1.3. Relationship with other energy efficiency and climate policies

The Energy Labelling Directive and the Ecodesign Directive contribute to the Energy Efficiency Directive's⁶target (Article 3) to ensure that the Union's 2020 energy consumption is not more than 1483 mtoe of primary energy or not more than 1086 mtoe of final energy consumption. The Energy Labelling Directive and the Ecodesign Directive are complementary to the measures Member States are required to take by the Energy Efficiency Directive. In order to prevent double counting, it is specified in the Energy Efficiency Directive that for energy savings obligations of Member States (Article 7), only savings exceeding those achieved by ecodesign can be counted towards those obligations.

There is no direct relation between the Energy Labelling and the Ecodesign Directives and the EU's main policy instruments to reduce greenhouse gas emissions, i.e. the Emission Trading System (ETS)⁷ and the Effort Sharing by Member States in the non-ETS sectors⁸. Energy efficiency policy is a policy in its own right for the objectives of competitiveness, security of supply and sustainability. Energy efficiency measures are complementary to ETS because they address non-price barriers such as lack of information, bounded rationality and high behavioural discount rates. In the case of products, the incentive generated by the ETS could in theory prompt companies exposed to the ETS price to pressure appliance manufacturers to reduce this consumption, but in practice this incentive is too indirect, diffuse and economically insignificant to make a real difference. By contrast, energy labelling provides consumers with information so that they can make more informed decisions precisely in the situations where it is relevant, namely when new products are purchased. Ecodesign removes all products from the market that would be more costly than the product that would have the least cost during its lifetime (purchase costs plus operating costs), because not all consumers make "rational" decisions and they discount future cost savings more than what is rational (and certainly more than what is socio-economically optimal).

By reducing electricity consumption of products, ecodesign and energy labelling have a direct effect on the demand for electricity, which is part of the ETS sector. Because ecodesign and energy labelling reduce the demand for electricity, less effort is needed under the ETS. As a result, the price of allowances is lower than it would otherwise be⁹. However, so far Commission assessments have not found evidence of this in the current framework, as the decrease in the prices of allowances was primarily driven by lower economic activity and other factors. In the future this might change, although the proposed Market Stability Reserve, by reducing the surplus, would counteract this effect and stabilise the level of emission allowance prices¹⁰. In the sectors not covered by ETS, EU action on ecodesign and energy labelling brings down the cost of national action to achieve greenhouse gas emission saving targets. Reducing energy use of products cannot be sufficiently achieved by the Member States, because this would lead to divergent national provisions and procedures (while having similar objectives) that would generate undue costs for industry (and eventually consumers) and constitute obstacles to the free movement of goods within the EU.

6 Directive 2012/27/EU

7 http://ec.europa.eu/clima/policies/ets/index_en.htm

8 http://ec.europa.eu/clima/policies/effort/index_en.htm

9 Impact Assessment accompanying Communication from the Commission to the European Parliament and the Council on Energy Efficiency and its contribution to energy security and the 2030 Framework for climate and energy policySWD(2014) 255

10 ibid

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4.2. Evaluation of the current policy framework 4.2.1. Scope of the evaluation

The scope of the evaluation concerns energy-related products and it does not go into the question of whether energy savings are more or less cost-effectively achieved in other sectors.

The PRIMES reference and policy scenario 2013 show that in order to achieve our decarbonisation and energy targets, all policy measures are necessary for delivering energy savings. Further, given that the Ecodesign Directive applies the principle of setting requirements at the least life cycle cost level (explained further on in this impact assessment) and given that the Energy Labelling Directive requires that each step on the label corresponds to significant cost savings to the user, the costs to achieve the energy savings through these Directives are equal to or less than zero (further detail at the end of section 4.2.2).

The Energy Labelling and Ecodesign Directives are both framework Directives that lay down the conditions under which requirements can be set for specific energy-related products (such as washing machines or electric motors) through delegated acts (for energy labelling) and implementing acts (for ecodesign). The evaluation and this impact assessment focus on the framework Directives and not on the individual implementing regulations, which are subject to their own consultation and impact assessment process (see also process chart in Annex 2).

Therefore, the evaluation examined the implementation of the Directives for the product groups covered by the first Ecodesign Directive (article 16, which contained a list of priority products) and the two subsequent working plans. Any new products that may in future be addressed under this framework will be identified in the 2015-2017 Working Plan, which the Commission plans to adopt as part of the Circular Economy package later in 2015. Any identified product groups would be subject to preparatory studies that investigate in more detail the potential for environmental improvement and provide the elements for the identification of policy options in the subsequent impact assessments.

There are potentially other policy measures than Energy Labelling and Ecodesign that could increase the efficiency of energy-related products, such as fiscal measures, incentive schemes, voluntary schemes etc. However, this evaluation focusses on the specific problems that have arisen in the implementation of the Energy Labelling and Ecodesign, such as effectiveness of energy labels and enforcement. In wider context, energy labelling and ecodesign policies have shown to work well across the world. The Energy Labelling and Ecodesign policies have been an example for other jurisdictions outside the EU, thus driving significantly more energy savings, contributing to a more uniform global playing field and creating opportunities for European business abroad. The setting of minimum efficiency and labelling requirements is recognised globally as one of the most effective policy tools in the area of energy efficiency.

A recent study for the Commission¹¹ shows that out of 59 non-EU countries that have adopted equipment energy labelling schemes, half of them (53%) have adopted designs that have fully or partially emulated the EU energy label (including major economies such as Brazil, China, Korea, Russia and South Africa). At least 45 countries outside the European Union have adopted minimum energy efficiency requirements for products, some of them in fact implementing ecodesign regulations in the context of association agreements or EU membership negotiations. The EU and the US are the world leaders in the development of minimum energy efficiency requirements and energy labelling.

11 Ecofys, Impacts of the EU’s Ecodesign and Energy/Tyre labelling legislation on third jurisdictions, 30 April 2014

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4.2.2. Achievements of the legislative framework

To date 24 ecodesign implementing regulations have been put in place, some of which have been subsequently updated through amendment, and two ecodesign voluntary agreements are in place. Products covered range from household products, such as fridges, lamps and boilers, to professional and industrial products, such as electric motors and fans. In addition, 12 delegated regulations on energy labelling now ensure that a range of products must be sold with an EU energy label attached. The effectiveness of the policy is illustrated by the transformation of the market for fridges and washing machines shown in figure 3a and 3b.

Figure 3a: Transformation of the EU Market for refrigerators

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Figure 3b: Transformation of the EU Market for washing machines

It is possible that the energy efficiency improvement is in part due to other factors such as ongoing market trends independently of the policy. No ex-post counterfactual data is available to assess this, because it is difficult to quantitatively assess what would have happened in the absence of the policy. In any case, energy efficiency improvements do not necessarily occur spontaneously. On the contrary, for example in the case of vacuum cleaners, a product that was until recently not regulated by ecodesign or energy labelling, energy use per product was, in absence of regulation, increasing rather than decreasing, with no parallel improvement in functionality¹². By contrast, the various consumer studies show a high impact of the energy label on consumer choice¹³. In addition, the sheer existence of the energy label for a product group triggers a competition towards more energy efficiency among the manufacturers¹⁴. Therefore, at least a significant part of the observed energy efficiency improvement can be attributed to the Directives.

Based on modelling, in which energy use developments in the different sectors affected by ecodesign and energy labelling until 2010 were corroborated with Eurostat data, the ecodesign and energy labelling measures in place to date (see Annex 2 for a full list) are estimated to save 175 mtoe primary energy per year in 2020¹⁵. This estimate takes into accounts 'rebound' effects, i.e. behavioural responses to the use of more efficient products (e.g. using them more

12 AEA Energy & Environment, Work on Preparatory Studies for Eco-Design Requirements of EuPs, Lot 17 Vacuum Cleaners, February 2009

13 See studies referred to on page 12/13 of London Economics & Ipsos Mori, A study on the impact of the energy label – and of potential changes to it – on consumer understanding and on purchase decisions, 2014;

14 Ecofys, Evaluation of the Energy Labelling Directive and specific aspects of the Ecodesign Directive:

Final Report section 5.1.1.2. "Manufacturer response" p 76

15 This estimate includes the impact of all the measures adopted until March 2015, and that of measures at various stages of adoption. It does not include the impact of future measures covering those product groups where only preparatory studies are on-going or that are considered for the next Working Plan, or the impact of on-going and future revisions of existing measures.

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than was previously the case for the less efficient product¹⁶) and the trend towards ever more and bigger appliances (computers, displays, etc.) per household. The estimate does not take into account any non-compliance with the legislation, of which section 4.2.3 indicates currently to be about 10% of expected energy savings. Taking this into account means that ecodesign and energy labelling measures contribute to about two fifths of the EU 2020 target of 20% energy savings by 2020.Energy savings from considering new product groups within the scope of the Directives show a significantly lower cost-effective energy savings potential of around 6 mtoe per year in 2030.

Consumers trust the energy label and usually take it into account when they buy appliances¹⁷. The label achieves its intended effect in slightly different ways for different types of products.

For appliances such as fridges and washing machines, for which many consumers are aware that these can significantly affect their household bills, the label provides easily accessible and standardised information to help consumers take this into account in their choice. For other types of appliances where many consumers are less aware of the significance on their household energy bills, such as televisions, the label first of all raises their awareness on this and then secondly serves in a similar way as for fridges and washing machines. This is evidenced by the results of the consumer behaviour study¹⁸ which found that the choice between one and another label design has a greater difference in impact on behaviour when consumers rank energy efficiency of low importance in their purchasing decision. This observation was particularly strong in the case of televisions.

The Directives have helped consumers to lower their utility bills¹⁹, as the least efficient products are taken off the market through ecodesign and the choice of more efficient products is facilitated through energy labelling. For example, for fridges the average difference in energy consumption between A+++ and class B appliances is around 160 kWh per year representing about €600 over the appliance's lifetime. In total, the ecodesign and energy labelling measures in place to date are estimated to save end-users of products (household, commercial and industry) 110 billion euro net (higher acquisition costs counterbalanced by lower running costs) per year²⁰: composed of ca. € 170 billion saving on energy bills and € 60 billion extra acquisition costs. The net savings are€ 100 billion when taking into account current non-compliance levels. This is equivalent to 465 euros per household per year. By 2030, the net savings achieved by ecodesign and energy labelling measures in the different sectors will have grown to almost € 300 billion, saving the EU consumers almost 17% on total costs versus the situation without measures (see Figure 3c).

16 Recent academic research found rebound effects between 10 and 30% for a broad range of energy conservation measures, and a lower estimate for lamps specifically (6%). Miklós Antal, Jeroen C.J.M.

van den Bergh, Re-spending rebound: A macro-level assessment for OECD countries and emerging economies, Energy Policy 2014; Galvin, R., Estimating broad-brush rebound effects for household energy consumption in the EU28 countries and Norway: some policy implications of Odyssee data, Energy Policy 2014; Joachim Schleich et. al., A brighter future? Quantifying the rebound effect in energy efficient lighting, Energy Policy, 2014.

Background report I: Literature review, December 2013.

18 London Economics & Ipsos Mori, A study on the impact of the energy label – and of potential changes to it – on consumer understanding and on purchase decisions, 2014

19 The actual bills may at present not be lower or not as much lower as expected as a result of the policy, because the cost savings due to energy efficiency are (at least in part) offset by use of more and bigger appliances and by inceasing energy prices.

20 VHK, Ecodesign impact accounting part 1, May 2014, p6

http://ec.europa.eu/energy/efficiency/studies/doc/2014_06_ecodesign_impact_accounting_part1.pdf

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Figure 3c: Consumer total expenditure (running costs + acquisition costs) EU 2030 in billion euro with current ecodesign and energy labelling measures (blue) compared to absence of policy (blue plus pink), assuming energy price escalation rate of 4%. The graph includes the impact of tyre labelling (transport sector) which is not the subject of this impact assessment.²¹

For environmental aspects other than energy consumption there has been less impact so far, because most of such ecodesign requirements were introduced more recently and do not yet apply. The exception is water consumption, which has been addressed by the energy label for washing machines since 1996, by the energy label for dishwashers since 1999, and by ecodesign requirement for washing machines since 2011. For both washing machines and dishwashers the water consumption per cycle more than halved over the last ten years²². These regulations have thus also contributed to the strategy for a resource-efficient Europe²³. Apart from environmental and monetary benefits to end-users, the setting of requirements at EU level also benefits industry. A common and predictable regulatory framework brings down costs for manufacturers, because rules are harmonised across the EU. It reduces the commercial and financial risks of innovation²⁴and allows European industry to compete with lower cost countries on higher value added products. The increase in acquisition costs for the consumers translates into higher business revenue for all market actors (plus taxes). For measures existing and in the pipeline today, it is calculated that by 2020, the extra revenue will be € 55 bln, growing to € 75 bln by 2030, compared to a situation without measures.

Some 43% will go to industry, 11-12% to wholesale and 45% to retail, subdivided into 13- 16% to retail and (because there is a large share of installed products) 30-33% to installers.²⁵ While there is some administrative burden involved for business with the redesign and testing of the products, as well as the provision of technical documentation and of the energy label,

22 VHK, "Omnibus" Review Study on Cold Appliances, Washing Machines, Dishwashers, Washer-Driers, Lighting, Set-top Boxes and Pumps, 12 March 2014.

23 COM(2011) 21

24 in theory; in practice this has been confirmed for some products sectors, but not for some others, see:

Ecofys, Impact of Ecodesign and Energy/Tyre Labelling on R&D and Technological Innovation,, 23 May 2014

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these costs are orders of magnitude lower than the additional revenue generated by the higher acquisition costs of the products.²⁶

All in all, it can be stated with confidence that the existing measures under the two framework directives achieve energy savings at financial costs which are negative for all actors involved (they are gains), or, at most, are zero. The net consumer cost savings of the measures in the different sectors are illustrated in Figure 3c above. The reason for this is that the Ecodesign Directive requires the minimum requirements on product energy efficiency to be established at the level of Least Life Cycle Cost (LLCC) from the point of view of the end-user, meaning the level at which the combined purchase and running costs (energy, maintenance, disposal etc.) of a product are the lowest. Less efficient products would be cheaper to buy, but that advantage would be outweighed by the higher running costs. More efficient products would have lower running costs, but the advantage would be outweighed by the higher purchase cost. Thus the LLCC level achieves the highest cost savings compared to the base case, meaning the ecodesign measures are cost-savers by definition. The Energy Labelling Directive requires that each step in the label corresponds to significant cost savings to the user. As a result, all the classes in the label have to include products whose combined running and purchase costs are lower than that of the base-case non-efficient product (below the

"break-even point" in Figure 3d), ensuring that energy labelling promotes, also by definition, products that bring absolute cost savings over the life cycle.

Figure 3d. Typical Life Cycle Cost curve. I = Basecase, II = Least Life Cycle Cost, III = No financial loss (break even point), IV = Best Available Technology ²⁷

26 For example, the compliance costs for the redesign of the products (which includes testing) covered by 15 ecodesign regulations are estimated at merely 45 million euros / year for the entire industry (see Annex 9 Measure 8). Other administrative costs (such as producing technical documentation and providing the label) tend to be much lower than this.

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4.2.3. Problems with the current legislation and implementation

The evaluation study identified the following problems with the current framework²⁸: Problems related to Energy Labelling

(1) 'Reduced effectiveness of labels following the introduction of A+ and up classes': In the recast of the Energy Labelling Directive in 2010 three classes (A+++, A++, A+) were added on top of the existing labelling A (best) - G (worst) scale of the EU energy label. These new classes have reduced the effect of the label on consumers to purchase more efficient products. While consumer research shows that the new label scale is understandable for consumers²⁹, it has reduced their willingness to pay more for more efficient products, because they are less motivated by a difference between A+ and A+++ than by a difference between C and A.³⁰

The scale of this problem can be illustrated by the difference in energy consumption between A+++ and A+ washing machines (with 7 kg load) which is 50 kWh/year³¹. At sales of more than 15 million washing machines a year³², this difference means after a period of fifteen years more than 11 TWh/year electricity use (1 mtoe primary energy) for all washing machines bought in that period. Given that washing machines present only a fraction of the savings of all labelled products, the scale of this problem is significant. At the same time, the addition of A+ and up classes meant that the scale remains of a closed type. Thus, a rescaling of the label classes is necessary when a large share of the market reaches class A+++. Rescaling has not yet been undertaken, as no agreed method exists³³and the possibility to add + classes has so far undermined any compromise for such rescaling.

For several product groups, products populate mainly the highest classes leaving the lowest classes unpopulated, which is not known to consumers³⁴. This is in part because of the success of the scheme, as manufacturers have responded to the challenge of producing more energy efficient products, but also because of incoherence between energy labelling and ecodesign regulations. For a number of product groups, the ecodesign and energy labelling regulations have in the course of time become incoherent, because further steps of staged bans by ecodesign were put into place while energy labels were unchanged. This means that a number of classes

27 From:VHK, Methodology for Ecodesign of Energy-related Products (MEErP) 2011, Methodology Report Part 1 (Methods), 28 November 2011, page 136.

28 Ecofys, final technical report p.4

29 Ecofys, final technical report p.81 and London Economics & Ipsos Mori, A study on the impact of the energy label – and of potential changes to it – on consumer understanding and on purchase decisions, 2014

30 Confirmed also by a recent study finding that the A class is an anchor for consumers’ judgment of energy efficiency and that an extension with plusses weakens the label, resulting in consumers attaching less importance to energy efficiency when choosing appliances (Folke Ölander & John Thøgersen, Informing Versus Nudging in Environmental Policy, J Consum Policy, 8 March 2014)

33 When rescaling was proposed to stakeholders for televisions in 2012, this was considered premature without clear provisions for this in the Energy Labelling Directive.

34 Notably for washing machines: 43% of sales in 2014 were of class A+++ (topten.eu, Energy efficiency of White Goods in Europe: monitoring the market with sales data, 3 June 2015, http://www.topten.eu/uploads/File/WhiteGoods_in_Europe_June15.pdf)

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shown on the energy label are unpopulated because of ecodesign legislation having banned products of that efficiency. In the most extreme cases of washing machines, fridges and dishwashers, the energy label currently displays A+++ to D classes, but only A+++, A++ and A+ appliances can still be placed on the market.

(2) 'Increase in size of appliances': There is a trend towards larger products in particular product groups, i.e. refrigerators, washing machines and TV’s. For example, the average viewable surface area of TV's grew from 10 dm² (19 inches diagonal) in 1990 to 28 dm² (32 inches) in 2010 and is projected to rise to an average 71 dm² (51 inch) in 2030³⁵. As a result, overall efficiency improvements for these products may not result in absolute energy savings. It is unclear if this trend is solely in response to consumer demand or whether this is in part a development driven by the label since it is normally easier to make larger appliances more efficient and thus obtain higher label classes³⁶: the rating scale of the label rewards energy efficiency, i.e. energy use related to a function such as the screen size of a TV. Although the label provides consumers also with the absolute energy consumption, some consumers do not understand this³⁷ and a significant share of consumers thinks the rating scale itself represents energy consumption, rather than efficiency³⁸.

Problems related to both Energy Labelling and Ecodesign

(3) 'Long rulemaking processes, leading to outdated technical and preparatory work':

While the entire process from the start of the preparatory study to the publication of the regulation should be possible within 41 months, until 2012 the average was 49 months. This leads to lost savings as measures enter into force later and are based on outdated market data. After the preparatory study, the process takes approximately 20 months (see for further detail Annex 2). Thus, even if the 41-month schedule could be followed, the market data from the preparatory study will be outdated by the time of the decision on the regulation. The lack of availability and access to recent market data is a problem for the preparatory study and for the regulatory process if there is a need to update such data.

Another aspect related to the rule-making process is that the Energy Labelling Directive lacks a working plan and a formalised stakeholder forum such as the Consultation Forum under the Ecodesign Directive, although in practice ecodesign and energy labelling regulations have always been developed together using the Ecodesign Directive's working plan and stakeholder forum as a basis. So far only in one case was only an energy labelling regulation developed (for updating all energy labelling regulations with regard to the display of the label on the internet), for which the same consultation procedure was applied as for ecodesign.

(4) 'Too low level of ambition for a number of product regulations': The evaluation study found that while for some product groups ecodesign regulations and labels have

36 E.g. in Germany 2012 90% of TVs with a screen size of less than 80 cm had class A and B and hardly any class A+, whereas more than 50% of TVs a screen size of 140 cm or more had class A+; almost all washing machines of capacity 3-4.5 kg had class A or A+, whereas more than 80% of those with capacity of 8 kg had class A+++; Okopol, Beyond energy efficiency, May 2014, p.10

37 Ecofys final technical report p.80

38 Ecofys, Background report II: Survey results. p.47; Wade and Watson, The New European Energy Label: Assessing Consumer Comprehension and Effectiveness as a Market Transformation Tool, May 2013, p.92.

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shown the right ambition level, for many other product groups the level of ambition is too low compared to what is technically and economically feasible (see Annex 10 for details). The evaluation highlighted this is often related to the problem of limited and outdated data. In addition, also the requirement in the Ecodesign Directive³⁹ of aiming to set requirements at the least life cycle cost⁴⁰poses problems. This criterion assumes that more efficient products have increased investment cost and decreased cost of operation (namely energy cost). On the basis of product-specific conditions (taking e.g. into consumer behaviour and durability of the product that determine its lifetime) the level of the requirement for the least life cycle cost should be established. However, for e.g. electronic products there is not always a clear relationship between purchase price and efficiency⁴¹. In addition the evaluation study indicates that two existing voluntary agreements have an ambition level that is too low compared to what is technically and economically feasible.⁴²

(5) Non-compliance due to 'weak enforcement': The expert estimate from the evaluation study is that yearly around 0.6% of the market is surveyed. The indication is that 10- 25% of products on the market are non-compliant with ecodesign requirements⁴³. Some 20% of products are estimated to be offered for sale without the energy labels displayed and another 15% have the label displayed in an insufficient way (e.g.

wrong placement, retailer made label, label hidden or covered). On the basis of these figures, the average level of non-compliance with ecodesign and energy labelling regulation is estimated at 20%.

The share of non-compliance itself does not provide a clear indication of what the scale of the problem is with regard to loss of envisaged energy savings: some non-compliant products may be only a little less efficient than required or indicated on the label, while others may be much less efficient. Based on expert estimates, the evaluation study indicates that around 10% of envisaged energy savings are being lost due to non- compliance⁴⁴. In addition to the findings of the evaluation study, further analysis of market surveillance performance by Member States based on collection of data by the Commission is provided in Annex 3.

There is a general agreement that the level of market surveillance is too low and should be increased as it is economically beneficial for society (current investments in enforcement are estimated to be 0.05% of the value of lost energy savings⁴⁵). Non- compliance also affects consumers, who may have bought an appliance with a

39 In point 1 of Annex II of the Ecodesign Directive

40 The life cycle cost is the combined cost of purchasing the appliance and the running cost (energy and any other resources) over its lifetime. Setting requirements at the least life cycle cost means that the level of the requirement is set as such that the cheap, inefficient appliances are banned, but not the ones that are cheapest in life cycle cost.

41 Hans-Paul Siderius, Setting MEPS for electronic products, Energy Policy 2014.

42 Ecofys, Background document II: Survey results. Annex I, p.112-113

43 Such estimates probably exclude so-called formal non-compliances such as incorrect documentation delivered with the product. As illustration of different levels of non-compliance, in the Atlete II project ( http://www.atlete.eu/2/ ) out of 50 washing machines, none were found non-compliant with the ecodesign requirement for energy efficiency, seven were found to be non-compliant with other specific ecodesign requirements (e.g. water consumption), but as many as 34 were found to be non-compliant with generic ecodesign requirements such as requirements for the booklet of instructions.

Background report I: Literature review, December 2013, p.9.

45 Ecofys final technical report p.159 referring to P. Waide et al., Enforcement of energy efficiency regulations for energy consuming equipment: findings from a new European study, Proceedings of the 6th International Conference EEDAL'11 Energy Efficiency in Domestic Appliances and Lighting

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different performance than what they were informed of, and the competitiveness of many manufacturers as it undermines a level playing field. There are a number of different drivers behind the weak enforcement:

– 80% of the respondents to the public consultation think that not enough resources are given to market surveillance authorities.

– The evaluation also highlighted unclear provisions in the legal texts, notably an overlap of requirements between the Energy Labelling Directive and its delegated acts⁴⁶, which leads to questions of interpretation and makes analysis of suspected non-compliance cases more difficult. In addition, there is an overlap of provisions between the Directives and the market surveillance regulation⁴⁷. The market surveillance regulation sets out the general requirements and procedures for Members States to enforce EU-harmonised product legislation, while product-specific legislation such as the ecodesign and energy labelling include the requirements for economic operators that Member States need to enforce. However, the Ecodesign and Energy Labelling Directives currently also include a number of provisions on procedures for enforcement. This overlap is less likely to lead to interpretation questions, as the provisions in the Ecodesign and Energy labelling Directive should take precedence over those in the market surveillance regulation. Nevertheless, different procedures for market surveillance for Ecodesign and Energy Labelling than for safety legislation (even though the products concerned may be the same ones) sectors creates additional burden for Member States authorities, making market surveillance less efficient.

– A specific obstacle for authorities concerns the timely access to technical documentation and the ability to contact foreign entities, including the identification of the manufacturer⁴⁸. More importantly, even in the common case where the manufacturer is known and contacted, obtaining the technical documentation for individual products often takes several weeks⁴⁹, even though the legislation requires that this should be made available within 10 days. Furthermore, manufacturers use the same energy label and/or ecodesign declarations for a range of “product family” models ("equivalent models") that have the same performance⁵⁰, but this information is only available once the technical information file is received and since it is not available in readily shareable electronic format market surveillance authorities are often not aware that other authorities may have already tested an equivalent model. As 10

46 Article 4, 5 and 6 of the Energy Labeling Directive contain requirements for Member States. These are effectively requirements for suppliers and dealers and are included as such also in the delegated acts, though with more precision, but the overlap of requirements leads to questions of interpretation.

47 Regulation (EC) No 765/2008, for which the Commission has proposed a revision (COM(2013)75)

48 Raised by authorities in interviews; cf. Ecofys final technical report, p.162

49 One Member State indicated that it can take their market surveillance authority sometimes up to 50 days to obtain technical documentation from manufacturers, because of lack of cooperation, even though the Directives oblige manufactures to supply it within 10 days; see Annex 1. Market surveillance inspectors also report that technical documentation and/or test reports received are sometimes dated after the date of their request, whereas manufacturers should have such information readily available.

50 As indicated in the Ecopliant ( http://www.ecopliant.eu/) Establish Best Practice interim report on the five stages of market surveillance studied: "The model numbers of certain products are inconsistent across the EU. For instance, the model number of a product in one MS may be different from the model number of the same product in a different MS."

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market surveillance authorities (MSAs) indicate in the Ecopliant project "The different trademarks and different model identification for equivalent products is often a problem for MSAs controlling the national markets, and this is especially a barrier for increased coordination of market surveillance activities across the EU."⁵¹

– Cooperation between market surveillance authorities is considered limited and better coordination is a way in which the impact of market surveillance can be increased without significantly increasing the resources used for enforcement authorities at national level.

Problem related to (predominantly) Ecodesign⁵²

(6) 'Other environmental impacts could receive more attention': the evaluation study found that regulations to date have mainly addressed the use-phase energy consumption, as this represents the most important contribution to the environmental impacts of the energy-related products. There is potential for reduction of other environmental impacts of energy-related products, e.g. through increased durability.

The evaluation study indicates that for properly including non-energy aspects modifications to the MEErP⁵³ methodology used for preparatory studies would be necessary⁵⁴. To address other environmental impacts of products more widely, an extension of the scope of the Directives to product groups other than energy-related products would be necessary, since for other types of products, environmental impacts other than use-phase energy usually dominate. However, the environmental impacts of products other than energy-related products is a wider problem than the Ecodesign Directive and there may be other ways to address it than to extend the scope of the Directive. Therefore, the assessment of measures related to the Ecodesign Directive to address this problem should take into account other policy instruments that can address the underlying problem for these products.

Thus, the following six problems are identified, along with their underlying drivers:

(1) Reduced effectiveness of labels following the introduction of A+ and up classes – Label layout laid down in recast Energy Labelling Directive

(2) Increase in size of appliances

– Consumer demand for bigger products⁵⁵

– A share of consumers interpret the label rating as absolute consumption

– Easier for larger appliances to be made more efficient and achieve higher label classes

51 Best Practice Guidelines, Ecopliant European Ecodesign Compliance Project (draft 19 December 2013)

52 While the Energy Labelling Directive could be changed to address this problem, it can be argued that it was never meant to address this given the clear focus of the scope on the energy in the use-phase.

53 Methodology for the Ecodesign of Energy-related Products:

http://ec.europa.eu/enterprise/policies/sustainable-business/ecodesign/methodology/index_en.htm

54 Ecofys final technical report p.5, although on p.32 it adds that on-going studies aim to address this.

55 This driver is not further assessed in this impact assessment, because it is a driver external to the policy area concerned.

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(3) Long rulemaking processes

– Proper consultation, consideration and assessment requires time⁵⁶ – Limited and outdated data

(4) Too low level of ambition for a number of product measures – Limited and outdated data

– Least life cycle cost criterion is poor guidance

– The criteria for requirements of self-regulation are not sufficiently detailed⁵⁷ (5) Weak enforcement

– Insufficient national resources made available – Overlap of legal provisions

– Difficult access to technical documentation – Insufficient cross-border cooperation

(6) Little reduction of non-energy environmental impacts – MEErP does not sufficiently capture some impacts

– Scope of the Directives excludes non-energy related products⁵⁸

These six problems diminish the ability of the legislation to reduce negative impacts of products on the environment. They lead to a loss of potential energy savings, unnecessary extra cost for consumers, not satisfactorily informing them, and low savings impact on environmental issues other than energy. The problems identified include the problems that were not fully addressed by the non-legislative actions initiated after the 2012 review of the Ecodesign Directive⁵⁹.

4.3. The baseline: How will the problem evolve?

The purpose of the baseline is to identify what would happen in the absence of new policy.

The baseline is quantified so that the analysis of the policy options formulated and analysed in the next chapters can be compared to it. The quantification of the baseline is done on the basis of the 'ecodesign impact accounting' model, of which further detail is provided in Annex 5.

56 This driver is not further assessed in this impact assessment, because it relates to general procedures not specific to this policy area.

57 Annex VIII of the Ecodesign Directive contains indicative criteria that may be used to evaluate the admissibility of voluntary agreements as alternative to implementing meaures. On level of ambition, the criteria only indicate that there must be aaded value compared to business as usual, However, this driver is not further assessed in this impact assessment, because the Commission is in the process of developing guidelines for voluntary agreements, on which the Ecodesign Consultation Forum was consulted on 12 June 2014. These guidelines aim to cover, inter alia, the ambition level of voluntary agreements by specifying a minimum level of market share to be covered by such agreements.

58 The driver in the context of Ecodesign and Energy Labelling. There may be other drivers in the context (or absence) of other policy instruments.

59 Further detail on the 2012 review of the Ecodesign Directive is in Annex 4.

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